Mind the gap: Financial Advice Market Review must focus on consumer responsibility
Pension freedoms will mean a bigger advice gap. The burning question is - what are the Treasury and FCA going to do about it?
As I said when I spoke at the WMA Investment Conference, the appetite for flexible drawdown is the big story from the first quarter pension freedoms data. Does this mean consumers value flexibility over certainty? It's too early to say- market volatility over the last few months might mean, amongst other things, that the longer term trend looks slightly different.
The data does suggest that there is an opportunity for providers and advisers to offer their clients something new. If there is increasing demand for flexible drawdown pensions, then presumably there will be increasing demand for investments. If we go one step further, it might also follow that there will be increasing demand for investment advice. But will this demand be met? In practice, a bigger advice gap is likely.
This makes the Financial Adviser Market Review (FAMR) all the more important. And for me, there is one issue more than any other that needs to be addressed: the issue of consumer responsibility.
Martin Wheatley briefly referred to the need to reconsider consumer responsibility in light of pension freedoms. This now needs to happen. Being overprotective of consumers presents a barrier to innovation and solutions.
Professional help is needed now more than ever. The likely reality seems to be that most consumers cannot afford to fund their lifestyle objectives in retirement- or even fund their retirement full stop, regardless of lifestyle objectives. And that professional help must be affordable. Affordable advice is not possible if the Treasury, the FCA and FOS effectively treat advisers (directly or through their FSCS levy) and their PI insurers as offering consumers some form of product guarantee policy in the event of losses.
There is talk of there being a "sandbox" for experimenting with robo-advice type innovation to fill the advice gap. We will need to see the detail but the danger is that it skirts around the issue of consumer responsibility. FAMR is an opportunity for the Treasury, the FCA (and, indirectly, FOS) to get realistic about consumer responsibility and provide firms with some certainty. If they don't, they will find firms paying only lip service to the need for innovation and solutions.
I'm not advocating a return to 'buyer beware'. Too often the industry has not helped itself. Protecting consumers from the exploitative few should not be ignored. But surely the regulator would be better off focusing on identifying and dealing with these few- and letting the rest of the industry focus on offering consumers the help they desperately need to fund their retirement or, indeed, their retirement lifestyle objectives!